Pay and Benefits

Q We have a few employees for whom we need to provide termination payments. Given that the date of leaving is 3 November 2011 we tend to process these few days’ pay with any salary due in the previous month. Last month we concluded a termination payment and one of our senior employees queried the National Insurance (NI). Her concern was in relation to the amount of NI that she paid in the relevant pay period. She believed that this should be reduced on the basis that had she been paid in the current month, then no NI would be due. Are we doing something wrong?

A In considering pay for tax and NI purposes there are some subtle differences that will apply. Namely, if you are calculating tax then Pay As You Earn (PAYE) is driven by your pay periods. In other words, when you actually make the payment or similarly when the employee is entitled to be paid, even if this is not processed until later. NI, however, is based upon what is deemed to be your usual/normal earnings period, be it on a weekly or monthly payroll cycle. Your employee does make a valid point; if you follow the HM Revenue & Customs (HMRC) guidance to the letter it states: “If a payment is made when the employee leaves, work out NI contributions using the usual earnings period.” In your case this is monthly, therefore strictly speaking the NI should be apportioned and calculated separately for each period then added together. If the earnings due for the three days in November fall below the Primary Threshold then as you know, no NI is payable on that proportion. Computerised payroll systems seldom apply this rule automatically, but some payroll software systems have the facility to flag part payments in order to comply.

Q A few nights ago there was a fire at our offices. The Facilities Manager was called and he returned to work to assess the damage and see what needed to be done. The Manager had been attending our annual works function so needed to call a cab in order to get to the office as he would have been over the legal limit to drive. Furthermore, because this was a social work event, we had organised transport to take employees to and from the venue. It would appear that the problem took some time to resolve and by the time the situation had been rectified it was around 2am. Consequently,  he booked himself into a hotel across the road from the offices as he needed to return the next day and was back at his desk at 8am. Given the nature of circumstances surrounding the call-out, the Managing Director says the company should meet his expenses. Will this be taxable?

A Any costs met on the manager’s behalf are taxable and liable to Class 1 National Insurance contributions (NICs). Unfortunately, any return to work outside of normal working hours is still ordinary commuting and is taxable. The same applies to the hotel accommodation at or near the normal place of work. In other words, he was not away.

 

If you want to repay the Manager tax and NICs free, you can consider grossing up the payment so that after Pay As You Earn Income Tax and NICs are deducted, the Manager is left with the amount of money you want him to receive.

Q Last winter we had so many employees off sick with flu that we have decided to offer all employees the opportunity to have a free seasonal flu jab this autumn. What are the Income Tax implications?

A Unfortunately, this will be a taxable benefit which will be based on the cost to you of providing the service. However, as this is only likely to be minimal per employee, if you have a lot of responses you should be able to get the costs covered under a PAYE Settlement Agreement so you pay the Income Tax rather than your employees. Do not forget though that items for the PSA should be agreed with HM Revenue & Customs (HMRC) by 6 July with submission provided by 19 October if a paper submission, or 22 October if filed electronically. Remember too that this date should be brought forward where the date falls at the weekend.

Q An employee has had a change of company car from 1 July. Should we send HMRC a P46(Car) or do we no longer have to do that?

A HMRC decided that from 6 April 2009 there was no longer a requirement for an employer to send in a form P46(Car) when there was a change in car. A company is now only required to do this when an employee is first provided with a car, when the provision is withdrawn, and/or the employee first receives free fuel.

As a result of lobbying by the payroll profession, HMRC agreed that from 6 April 2011 onwards, an employer can submit a form P46(Car) when there is a change in provision. However, it will only accept forms P46(Car) notifying this event if the return is submitted online. Paper forms notifying an in-year change will not be accepted.